Capital Gains Inclusion Rate Update (Jan 2026): What Small Business Owners Need to Know

If you’ve been hearing mixed messages about “capital gains changes,” you’re not alone. The inclusion-rate increase was proposed, then delayed, and later reversed—so a lot of older articles (and hallway chatter) are now out of date.

Status update (as of Jan 1, 2026)

• The federal government announced it does not intend to proceed with the proposed increase to the capital gains inclusion rate, and CRA guidance reflects that the proposed increase was cancelled.

• The capital gains inclusion rate that applies under current law remains 50% (one-half).
  

What happened (quick timeline)

• Budget 2024: Proposed raising the inclusion rate from 1/2 to 2/3, proposed to apply starting June 25, 2024, with two reporting periods for 2024.

• Jan 31, 2025: Finance announced a deferral of the proposed change to Jan 1, 2026.

• Mar 21, 2025: The government announced it does not intend to proceed, and CRA reverted to administering the enacted 1/2 inclusion rate.
  

What this means for small business owners

• There is no planned jump to 2/3 in 2026 based on current law and the cancellation announcement.

• If you were accelerating a sale “just because of the rate,” that pressure has largely eased—but good tax planning still matters, especially for:

  • whether your shares qualify as Qualified Small Business Corporation (QSBC) shares, and

  • using the Lifetime Capital Gains Exemption (LCGE) effectively.
    

A practical note on 2024 reporting (Period 1 vs Period 2)

For 2024 returns, CRA is maintaining Period 1 (Jan 1–Jun 24, 2024) and Period 2 (Jun 25–Dec 31, 2024) reporting on certain T1/T3 schedules to stay aligned with slips that were already designed/issued on a two-period basis. You may need to split reporting if your slips report amounts by period.

Late-filing relief (2024 filing season)

CRA provided temporary relief from late-filing penalties and arrears interest until:

• June 2, 2025 for impacted T1 individual filers

• May 1, 2025 for impacted T3 trust filers

(Those relief dates have now passed.)

What should you do next?

If you’re planning a sale, restructure, or succession:

• Focus on QSBC eligibility, corporate “purification,” and LCGE planning—not just rate-change timing.

• Keep documentation tight (valuation support, share terms, and any pre-sale cleanup steps).

• Get advice early—small changes in timing or structure can have big tax results.
  

This blog post is for informational purposes only and is not tax, legal, or financial advice. Tax outcomes depend on your specific facts, and rules can change. Please obtain professional advice before acting.